Why There’s Some Cause for (Cautious) Optimism

What’s in Today’s Report:

  • Why There’s Some Cause for Cautious Optimism

Futures are slightly lower following a quiet night of news as markets digest Thursday’s rally.

Economically the only notable number was the UK Home Price Index, which like the U.S. readings this week saw smaller than expected declines, falling –0.1% vs. (E) -0.7%.

Geopolitically, Russia continued Thursday’s missile bombardment of Ukraine is a clear signal that fighting will rage on as the New Year begins.

Trading today will be dominated by book squaring and year-end positioning but there is one notable economic report, Chicago PMI (E: 41.0), and if it’s weak it could weigh on markets moderately.

Five Market Questions That Need to be Answered in 2023

What’s in Today’s Report:

  • Five Market Questions That Need to be Answered in 2023 (And Which Answers are Positive or Negative)

Futures were volatile overnight but are now little changed following the Bank of Japan’s shock announcement of an effective interest rate increase.

The BOJ announced that it is widening the trading band on the 10 year Japanese Government Bond to 0.00% – 0.50% from the previous 0.0% – 0.25%.  This amounts to a 25 basis point rate hike.

Economic data was positive as German PPI fell more than expected (-3.9% m/m vs. (E) -2.2%) in what is another sign of global dis-inflation.

Today there is one economic number, Housing Starts (E: 1.4M), but that won’t move markets.

Instead, focus will be on the fallout from the BOJ surprise “ rate hike.”  Bottom line, markets dropped late last week and yesterday in part on higher global bond yields (following the hawkish ECB announcement) so this rate hike by the BOJ is another headwind and I’d not be surprised to see stock decline modestly on this news today, barring any positive surprises.

The Key Influence on Markets as We Approach 2023

What’s in Today’s Report:

  • The Key Influence on Markets as We Approach 2023
  • Weekly Market Preview:  Can Economic Data Help Stop the Selling?
  • Weekly Economic Cheat Sheet:  Core PCE Friday the Key Report

Futures are slightly higher on a mild oversold bounce following last weeks’ losses and a quiet weekend of news.

China announced the closing of schools in Shanghai on Monday in response to surging COVID cases, but the broader economic reopening remains on track.

Economically, the German IFO Business Expectations Survey was higher than expected (83.2 vs. (E) 82.0) as was UK Industrial Trends (-6% vs. (E) -9%) but neither number is moving markets.

Today the only notable economic report is the Housing Market Index (E: 34) and markets will want to see continued moderation in the data (housing remains a major contributor to high CPI so more progress on that front will be a mild positive).

Why Stocks Are Falling (It’s Not Just the Fed)

What’s in Today’s Report:

  • Why Stocks Are Falling (It’s Not Just the Fed)

Futures are sharply lower on momentum from Thursday’s selling as investors further digest the hawkish ECB decision and yesterday’s lackluster economic data.

Despite weaker stock prices this morning, economic data overnight was mildly encouraging.  EU and UK December flash PMIs both slightly beat estimates while the EU HICP wasn’t any worse than feared at 10.1% y/y.

Today there are two important economic reports, the Flash Manufacturing PMI (E: 47.7) and Flash Services PMI (E: 46.5) and markets will need to see those data points show 1) Resilient activity and 2) Declining price pressures (more dis-inflation) if they are going to help stocks stabilize.  We also get one Fed speaker, Daly (12:00 p.m. ET), but she shouldn’t move markets.

Finally, today is a Quadruple Witching options expiration and it could cause some intense volatility as many traders had been positioned for a year-end rally, and as those hopes are being dashed, some book-squaring is likely in order.  Point being, don’t be surprised by an uptick in volatility this afternoon and into the close.

Economic Breaker Panel: November Update

What’s in Today’s Report:

  • Economic Breaker Panel – November Update

Stock futures are little changed in quiet holiday trading this morning as traders look ahead to the slew of economic data due out in the U.S. today as well as the release of the November Fed meeting minutes.

Economically, the Eurozone Composite PMI Flash came in at 47.8 vs. (E) 47.0 signaling economic contraction in the EU but the better-than-feared headline is helping European shares edge higher today.

This morning is lining up to be a busy one for economic data with Durable Goods Orders (E: 0.3%), Jobless Claims (E: 225K), PMI Composite Flash (E: 48.7), New Home Sales (E: 574K), and Consumer Sentiment (E: 55.0) all due to be released between 8:30 a.m. and 10:00 a.m. ET.

Additionally, the November Fed Meeting Minutes will be released at 2:00 p.m. ET.

Bottom line, with all the recent Fed speak, the Minutes are unlikely to offer any surprises today however data can move markets despite thinning attendance and light volumes. The market wants to see slowing but not collapsing growth measures and a downward acceleration in inflation (today’s inflation expectations within the Consumer Sentiment release will be the key figure to watch). If that materializes, the S&P might be able to break through key near-term technical resistance at 4,007 however high inflation and weaker-than-anticipated growth could send stocks tumbling back toward the lows of the week at 3,900.

All of us at Sevens Report Research are very thankful for your support! Everyone please travel safely, and have a Happy Thanksgiving. We will speak to you again Friday morning.

Jobs Report Preview

What’s in Today’s Report:

  • Jobs Report Preview

Futures are moderately higher on solid economic data and rising hope China could relax its “Zero COVID” policies.

The EU Composite PMI (47.3 vs. (E) 47.1) and UK Construction PMI (53.2 vs. (E) 50.5) both beat estimates, implying economic activity in Europe isn’t collapsing.

In China, an article in the South China Morning Post stated “big and substantive” changes looming for COVID policies.

Today focus will be on the Jobs Report and estimates are as follows:  Job Adds: 210K, UE Rate: 3.6%, Wages: 0.3% m/m, 4.7% y/y.  If markets can get an underwhelming number (say the low 100’s) that will be the first material sign the labor market is starting to deteriorate, and it could spark a rally in stocks as the Fed needs better balance in the labor market before they can “pivot.”

Away from the jobs report, we also have one Fed speaker, Collins at 10:00 a.m. ET but she shouldn’t move markets.

VIX History and the Current Bear Market

What’s in Today’s Report:

  • A Look at VIX History and the Current Bear Market
  • Chart: 30-Yr Treasury Bonds Fall to New Lows

Stock futures are testing the 2022 lows this morning as global bond yields push multi-year highs amid renewed turmoil in the U.K.’s government bond market.

The BOE expanded its emergency bond-buying program overnight after Gilt yields spiked higher, with officials warning that market dysfunction is threatening the U.K.’s financial stability.

Economically, the NFIB Small Business Optimism Index came in at  92.1 vs. (E) 91.5 for September.

There are no additional economic reports today but there are two Fed officials scheduled to speak: Harker (11:30 a.m. ET) and Mester (12:00 p.m. ET).

Looking back to the bond markets, there is a 3-Yr Treasury Note auction at 1:00 p.m. ET and if the results are weak, sending yields higher, that would further pressure stocks today.

Bottom line is, turmoil in the U.K. Gilts market is once again sending global yields higher and weighing on risk assets and if we don’t see bond markets stabilize this morning, then expect stocks and other risk assets to remain under pressure today.

What’s Needed for Markets to Stabilize

What’s in Today’s Report:

  • Bottom Line:  What’s Needed for Markets to Stabilize (It’s Not That Much)
  • Weekly Market Preview:  Can Bond Yields Fall Further?
  • Weekly Economic Cheat Sheet:  Jobs Report on Friday

Futures are slightly higher following some backtracking on the UK fiscal spending plan.

UK PM Truss has abandoned part of her spending/tax cut plan amidst market and political pressure as she will no longer eliminate the 45% top tax rate (this is a mild positive as GILT yields were slightly lower on the news).

Oil prices rallied 3% as markets expect a material production cut from OPEC+ at this week’s meeting.

Today focus will be on the ISM Manufacturing PMI (E: 52.0) and while the headline reading is important as always, the Prices index will also be closely watched.  If that index can decline below 50 it will be a strong signal that dis-inflation is starting to work its way into the economy (and that’s a good thing). There’s one Fed speakers today, Williams at 3:10 p.m. ET but he shouldn’t move markets.

Another Hawkish Surprise: What the Fed Decision Means for Markets

What’s in Today’s Report:

  • Another Hawkish Surprise: What the Fed Decision Means for Markets

Futures are little changed as markets digested yet another hawkish Fed decision amidst more global rate hikes.

The overnight session was mostly quiet as investors digested the Fed rate hike while other global central banks raised rates (five separate central banks hiked rates overnight, as expected).

The Bank of Japan intervened in the currency markets for the first time since 1998, causing a 1% rally in the yen.

Today focus will be on the Bank of England Rate Decision (E: 50 bps hike) and on weekly Jobless Claims (E: 220K).  Fed Chair Powell again highlighted that the labor market is still much too tight, so markets need these jobless claims to start to rise towards 300k to prevent even further Fed tightening in the future.  The sooner the labor market returns to better balance, the sooner we get to “peak hawkishness.”

FOMC Preview

What’s in Today’s Report:

  • FOMC Preview

Futures reversed from overnight gains and are now tracking EU markets lower following more very hot inflation data and an aggressive policy hike by the Riksbank.

In Europe, German PPI surged 7.9% vs. (E) 1.5% in August (45.8% vs. E: 37.2% y/y) while Sweden’s Riksbank raised rates by 100 bp vs. (E) 75 bp. Both developments are driving hawkish, risk-off money flows ahead of the Fed.

Today, focus will begin to shift to the Fed as the September FOMC Meeting begins however there is one report on the housing market that will get some attention when it is released mid-morning: Housing Starts (E: 1.440M) and Permits (E: 1.621M).

Beyond that one report, there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET. The auction may not move markets today with the Fed looming but it will be worth watching because if it is weak like last week’s 3-Yr and 10-Yr auctions ahead of the CPI report, it could be forecasting a more hawkish than expected Fed decision Wednesday.